Decarbonization Potential of Electrofuels in the European Union
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WHITE PAPER SEPTEMBER 2018 DECARBONIZATION POTENTIAL OF ELECTROFUELS IN THE EUROPEAN UNION Stephanie Searle and Adam Christensen www.theicct.org [email protected] BEIJING | BERLIN | BRUSSELS | SAN FRANCISCO | WASHINGTON ACKNOWLEDGMENTS Searle is with the International Council on Clean Transportation and Christensen is with the Three Seas Initiative. This work was generously supported by the European Climate Foundation. Thanks to Nikita Pavlenko, Jacopo Giuntoli, Nic Lutsey, Peter Mock, Chris Malins and Laura Buffet for helpful reviews and input. International Council on Clean Transportation 1225 I Street NW Suite 900 Washington, DC 20005 USA [email protected] | www.theicct.org | @TheICCT © 2018 International Council on Clean Transportation DECARBONIZATION POTENTIAL OF ELECTROFUELS IN THE EUROPEAN UNION EXECUTIVE SUMMARY Many European Union (EU) stakeholders expect electrofuels to have a prominent role in the EU’s energy future. Also known as “power-to-liquids,” “power-to-gas,” “e-fuels” and “e-gas,” electrofuels can deliver greenhouse gas (GHG) savings compared to petroleum when they are produced using low-carbon electricity. These alternative fuels are increasingly cited as a promising solution for achieving decarbonization of the transport sector because they can be used in internal combustion engines and, unlike most types of biofuels, have low land use impacts. Electrofuels will be incentivized by the recast Renewable Energy Directive (RED II) for 2021–2030 and automaker associations and other stakeholders are advocating for the GHG savings from electrofuels to also count toward vehicle CO2 standards. In a prior study (Christensen & Petrenko, 2017), we assessed the economics and GHG performance of electrofuel facilities in EU Member States from the present to 2040. This paper represents an update to that study, focusing on 2030 and introducing a number of changes to improve the relevance of this work for ongoing policy analysis. Our updated economic analysis for electrofuels uses a new, transparent renewable electricity price forecast for all EU Member States. We add a gaseous electrofuels pathway and assess its competitiveness with fossil gas, as well as explore the economics of using direct air capture to supply CO2 to electrofuel producers instead of industrial point sources. We analyze how the accounting of electrofuels in the final RED II impacts the GHG performance of these fuels and provide policy recommendations for maximizing their climate benefits. The net climate impact of electrofuels in the EU depends heavily on how they are counted toward the RED II targets. The RED II specifies that the energy content of the renewable electricity input to the electrofuels production process, not the energy content of the final fuel, is counted toward the 32% renewable energy target. Because the conversion efficiency of electrofuels is, at best, around 50%, the RED II effectively counts twice as much energy toward the renewable energy target as the amount of fossil fuels displaced, which is similar to the double counting of waste-based biofuels toward the renewable energy in transport target in the 2020 Renewable Energy Directive. If the 32% renewable energy sources (RES) target in the RED II is only just met (and not exceeded), any production of electrofuels would thus result in a corresponding shortfall in total renewable energy usage in the EU and thus an increase in fossil fuel use. We explore the direct and indirect GHG emission impacts of electrofuels in five scenarios. Scenario 1 represents electrofuel producers with a direct, off-grid connection to renewable electricity installations, and the RES target would be just met in Scenario 1A and exceeded in Scenario 1B. In Scenario 2, electrofuel producers import electricity from the grid, using guarantees of origin (GoOs) to demonstrate the electricity is renewable, and the RES target would be just met in Scenario 2A and exceeded in Scenario 2B. Scenario 2C is identical to Scenario 2A, but electrofuels count toward the renewable energy target on the basis of finished fuel, similar to other transport fuels. Our findings largely echo those of our previous study: Electrofuels will deliver limited—if any—renewable fuel volumes and GHG reductions in the EU in the 2030 time frame. We find that very high policy support of 2.5 or 3 euros per diesel equivalent liter would be needed to deliver significant volumes of electrofuels. No electrofuels could be produced economically in the EU with less than 1.50 euros policy support. Even at 3 euros per liter policy support, electrofuels would only offset at most around 0.4% of total EU road transport fuel demand in 2030. Grid-connected electrofuel facilities demonstrating renewable electricity consumption through GoOs are more competitive than facilities directly connected to new renewable electricity installations because they can operate i ICCT WHITE PAPER at full production capacity a greater proportion of the time. Gaseous electrofuels in particular are not competitive due to low fossil gas prices; furthermore, using direct air capture CO2 substantially worsens electrofuel economics. Significant volumes of electrofuels could potentially be produced in the 2040–2050 time frame if very high policy support were to be maintained. The potential net climate impact of electrofuels is shown in Figure ES-1. Only in a scenario where electrofuels count toward the 32% renewable energy target on the basis of fuel produced rather than input electricity (Scenario 2C) can electrofuels deliver a significant level of GHG reductions, up to 4 million tonnes CO2e annually by 2030. Even in that case, very high policy support would be needed to achieve those production volumes, which would still only offset 0.5% of projected road transport GHG emissions in 2030 in the EU. The 3 euros per liter policy support necessary to drive significant deployment is roughly equivalent to 1,200 euros per tonne CO2e abated in this best- case scenario. If electrofuels were allowed to count toward vehicle CO2 standards, this strategy of emission reductions would cost 300 euros for each gram CO2 reduction per kilometer. In all other scenarios, we find that electrofuels would not deliver significant GHG reductions. 4 Scenario 1A: Direct connection, RES target just met 3.5 Scenario 1B: Direct connection, RES target exceeded 0.5% e/year) 2 Scenario 2A:Grid-connected, RES target just met 3 Scenario 2B: Grid-connected, RES target exceeded 0.4% 2.5 Scenario 2C: Grid-connected, counting fuel energy 2 0.3% 1.5 0.2% 1 0.5 0.1% 0 0.0% -0.5 Share of 2030 road transport emissions -1 -0.1% GHG reduction in 2030 (million tonnes CO 1 1.5 2 2.5 3 per diesel-eq liter policy support Figure ES-1: Potential GHG reductions in million tonnes CO2e/year (left axis) and as a share of road transport emissions (right axis) from electrofuels in 2030 in the EU by policy scenario and level of policy support. Policymakers can make RED II implementation decisions to ensure that electrofuels deliver real GHG reductions. One promising option is to require electrofuel producers to submit GOplus certificates that could demonstrate that the renewable electricity used, whether through a grid connection or a direct connection, has not been directly counted toward the RED II renewable energy target. Such a requirement could be introduced on the basis of excluding electrofuel pathways with high life-cycle GHG emissions, if GOplus certificates are not obtained, or if Member States interpret the RED II accounting clause to mean that the amount of energy in fuel should count toward the renewable energy target. Alternatively, Member States could take measures to exceed the renewable energy target by approximately the same amount as the volume of electrofuels reported. ii DECARBONIZATION POTENTIAL OF ELECTROFUELS IN THE EUROPEAN UNION Another key recommendation is not to allow electrofuels to count toward vehicle CO2 standards in the EU. Counting the same fuel toward both policies would effectively reduce the stringency of the vehicle standards without delivering additional climate benefits. If measures are taken to ensure that GHG reductions from electrofuels are additional, these fuels can make a modest contribution toward the EU’s renewable energy and decarbonization goals. iii ICCT WHITE PAPER TABLE OF CONTENTS Introduction ................................................................................................................................1 Assessment of potential electrofuel volumes to 2030 ....................................................... 3 Methods........................................................................................................................................................3 Results on electrofuel potential in 2030 .........................................................................................9 Climate performance of electrofuels ....................................................................................13 Emissions accounting in the recast Renewable Energy Directive (RED II) ......................13 Scenarios for GHG assessment ..........................................................................................................15 Methodology for life-cycle greenhouse gas assessment .........................................................15 Results on greenhouse gas impacts ................................................................................................17 Policy recommendations .........................................................................................................21